- Q4 Sales Total $6.2 Billion; 2013 Sales Total $24.7 Billion

- 6.6 Million Shares Repurchased in Q4 for $699 Million; 27.3 Million Shares Repurchased in 2013 for $2.4 Billion; 2013 Weighted Average Shares Outstanding Decrease by Approximately 8 Percent

- 2014 EPS Guidance of $8.70 to $9.00

FALLS CHURCH, Va., Jan. 30, 2014 /PRNewswire/ -- Northrop Grumman Corporation (NYSE: NOC) reported fourth quarter 2013 net earnings of $478 million, or $2.12 per diluted share, compared to $533 million, or $2.14 per diluted share, in the fourth quarter of 2012. Fourth quarter 2013 diluted earnings per share are based on 225.2 million weighted average shares outstanding compared with 248.9 million shares in the fourth quarter of 2012, a decrease of approximately 10 percent. The company repurchased 6.6 million shares of its common stock in the fourth quarter of 2013 for $699 million.

For 2013, net earnings totaled $2.0 billion, comparable to 2012 net earnings. Diluted earnings per share for 2013 increased 7 percent to $8.35 from $7.81 in 2012. Diluted earnings per share for 2013 are based on 233.9 million weighted average shares outstanding compared with 253.4 million shares in 2012. During 2013, the company repurchased 27.3 million shares of its common stock for $2.4 billion. As of Dec. 31, 2013, $3.1 billion remained on the company's current share repurchase authorization. The company has repurchased 20.8 million shares toward its previously announced goal of retiring 60 million shares of its outstanding common stock by the end of 2015, market conditions permitting.

"Our team continues to deliver outstanding results. Although we are encouraged by progress toward a more normal budgeting process for our customers, we expect lower sales in 2014, particularly for our short cycle businesses. Despite this top line pressure, we expect other positive trends, particularly the benefit of our planned share repurchases, to support continued earnings per share growth in 2014. Our strategy remains the same. We are focused on superior program performance, effective cash deployment and portfolio alignment as the primary value creation drivers for our shareholders, customers and employees," said Wes Bush, chairman, chief executive officer and president.

Table 1 — Financial Highlights

Fourth Quarter

Total Year

($ in millions, except per share amounts)

2013

2012

2013

2012

Sales

$

6,157

$

6,476

$

24,661

$

25,218

Segment operating income1

772

875

3,080

3,176

Segment operating margin rate1

12.5%

13.5%

12.5%

12.6%

Operating income

768

824

3,123

3,130

Operating margin rate

12.5%

12.7%

12.7%

12.4%

Net earnings

478

533

1,952

1,978

Diluted EPS

2.12

2.14

8.35

7.81

Cash provided by operations

1,204

1,057

2,483

2,640

Free cash flow1

1,018

922

2,119

2,309

Pension-adjusted Operating Highlights

Operating income

768

824

3,123

3,130

Net FAS/CAS pension adjustment1

(43)

(31)

(168)

(132)

Pension-adjusted operating income1

$

725

$

793

$

2,955

$

2,998

Pension-adjusted operating margin rate1

11.8%

12.2%

12.0%

11.9%

Pension-adjusted Per Share Data

Diluted EPS

$

2.12

$

2.14

$

8.35

$

7.81

After-tax net pension adjustment per share1

(0.12)

(0.08)

(0.47)

(0.34)

Pension-adjusted diluted EPS1

$

2.00

$

2.06

$

7.88

$

7.47

Weighted average shares outstanding — Basic

220.5

243.4

229.6

248.6

Dilutive effect of stock awards and stock options

4.7

5.5

4.3

4.8

Weighted average shares outstanding — Diluted

225.2

248.9

233.9

253.4

1 Non-GAAP metric — see definitions at the end of this press release.

Fourth quarter 2013 total operating income decreased $56 million or 7 percent, and operating margin rate decreased 20 basis points to 12.5 percent. Lower operating income includes a $103 million decrease in segment operating income that was partially offset by a $33 million decrease in unallocated corporate expense and a $12 million improvement in net FAS/CAS pension adjustment. Fourth quarter 2013 segment operating income decreased 12 percent and segment operating margin rate decreased to 12.5 percent. The change in segment operating income is due to lower sales and operating margin rate at Aerospace Systems, and lower sales at Information Systems.

For 2013, operating income was $3.1 billion, comparable to the prior year period. Operating margin rate increased 30 basis points to 12.7 percent. Operating income for 2013 reflects a 3 percent decline in segment operating income, principally due to lower sales, partially offset by a $49 million reduction in unallocated corporate expenses and a $36 million improvement in net FAS/CAS pension adjustment.

Total backlog as of Dec. 31, 2013, was $37.0 billion compared with $40.8 billion as of Dec. 31, 2012. The decline in backlog was primarily due to reductions and delays in customer awards resulting from the current U.S. government budget environment as well as Information Systems backlog adjustments of $1.0 billion in the first half of the year, primarily to reduce unfunded backlog for expired periods of performance on active contracts. Fourth quarter 2013 new awards totaled $5.7 billion, and book-to-bill was 92 percent. For 2013, new awards totaled $21.9 billion, and book-to-bill was 89 percent.

The company's 2014 financial guidance is based on the spending levels provided for in the Bipartisan Budget Act of 2013 and the Consolidated Appropriations Act of 2014. The guidance assumes no disruption or cancellation of any of our significant programs and no disruption or shutdown of government operations resulting from a federal government debt ceiling breach. Guidance for 2014 also assumes adequate appropriations for our programs in the first quarter of the U.S. government's fiscal year 2015.

For 2013, federal and foreign income tax expense totaled $911 million, compared with $987 million in 2012. The effective tax rate in 2013 declined to 31.8 percent from 33.3 percent in the prior year period. The lower effective tax rate for 2013 is principally due to a $37 million benefit for the American Taxpayer Relief Act, which reinstated research tax credits for years 2012 and 2013, and a $21 million increase in Section 199 manufacturing deductions.

For 2013, Aerospace Systems sales were slightly higher than the prior year due to higher volume for manned military aircraft programs, offset by lower volume for unmanned and space programs. Higher volume for the F-35, B-2 and E-2D programs contributed to the increase in manned military aircraft sales. The decline in unmanned is primarily due to lower volume for Global Hawk, partially offset by higher volume for NATO AGS. The decline in space programs includes lower volume for restricted work and higher volume for the James Webb Space Telescope and the Advanced EHF program.

Aerospace Systems fourth quarter 2013 operating income decreased 22 percent and operating margin rate decreased 230 basis points to 11.5 percent. Lower operating income and operating margin rate reflect lower sales as well as a $101 million decrease in net favorable adjustments. For 2013, operating income was comparable to the prior year period and operating margin rate declined slightly to 12.1 percent.

Electronic Systems ($ millions)

Fourth Quarter

Total Year

2013

2012

Change

2013

2012

Change

Sales

$

1,883

$

1,775

6.1%

$

7,149

$

6,950

2.9%

Operating income

335

328

2.1%

1,226

1,187

3.3%

Operating margin rate

17.8%

18.5%

17.1%

17.1%

Electronic Systems fourth quarter 2013 sales increased 6 percent from the prior year period due to higher volume for space, international and combat avionics programs, which was partially offset by lower volume for navigation and maritime systems programs. For 2013, sales increased 3 percent principally due to higher sales for international and space programs. Higher volume for these programs was partially offset by lower volume for navigation and maritime systems programs and lower volume for laser systems programs due to in-theater force reductions.

Information Systems fourth quarter 2013 sales declined 14 percent due to lower funding levels, including impacts from sequestration and the government shutdown, lower volume for programs impacted by in-theater force reductions, contract completions, and the transfer of intercompany efforts to the company's shared services organization.

For 2013, sales declined 10 percent. The transfer of intercompany efforts to the company's shared services organization accounted for $98 million of the decline. Excluding the transfer, 2013 sales declined 9 percent due to lower funding levels, including the impacts of sequestration, lower volume for programs impacted by in-theater force reductions, and contract completions.

Technical Services fourth quarter and 2013 sales both declined by 6 percent. The decline in both periods was due to lower volume for integrated logistics and modernization programs and lower volume for the ICBM program.

Northrop Grumman will webcast its earnings conference call at noon Eastern time on Jan. 30, 2014. A live audio broadcast of the conference call will be available on the investor relations page of the company's website at www.northropgrumman.com.

Northrop Grumman is a leading global security company providing innovative systems, products and solutions in unmanned systems, cyber, C4ISR, and logistics and modernization to government and commercial customers worldwide. Please visit www.northropgrumman.com for more information.

This release and the attachments contain statements, other than statements of historical fact, that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "expect," "intend," "may," "could," "plan," "project," "forecast," "believe," "estimate," "outlook," "anticipate," "trends," "guidance," "goal," and similar expressions generally identify these forward-looking statements. Forward-looking statements in this release and the attachments include, among other things, statements relating to our future financial condition and operating results. Forward-looking statements are based upon assumptions, expectations, plans and projections that we believe to be reasonable when made, but which may change over time. These statements are not guarantees of future performance and inherently involve a wide range of risks and uncertainties that are difficult to predict.

Specific risks that could cause actual results to differ materially from those expressed or implied in these forward-looking statements include, but are not limited to, risks related to: the assumptions on which our guidance is based; our dependence on U.S. Government contracts; the effect of economic conditions in the United States and globally; changes in government and customer priorities and requirements; government budgetary constraints; shifts or reductions in defense spending resulting from budget pressures and/or changes in priorities, sequestration under the Budget Control Act of 2011, a continuing resolution with limited new starts; the lack of annual appropriations legislation or otherwise; debt-ceiling limits and disruption to or shutdown of government operations; timing of payments; changes in import and export policies; changes in customer short-range and long-range plans; major program terminations; the acquisition, deferral, reduction or termination of contracts or programs; our non-U.S. business, including legal, regulatory, financial, security and governmental risks related to doing business internationally; the outcome of litigation, claims, audits, appeals, bid protests and investigations; our ability to recover certain costs under U.S. Government contracts; market conditions; our ability to access capital; performance and financial viability of key suppliers and subcontractors; interest and discount rates or other changes that may impact pension plan assumptions and actual returns on pension plan assets; the adequacy of our insurance coverage and recoveries; the costs of environmental remediation; our ability to attract and retain qualified personnel; changes in health care costs and requirements; changes in organizational structure and reporting segments; acquisitions, dispositions, spin-off transactions, joint ventures, strategic alliances and other business arrangements; possible impairments of goodwill or other intangible assets; the effects of legislation, regulations, and other changes in accounting, tax, defense procurement or other rules or practices; technical, operational or quality setbacks in contract performance; availability of materials and supplies; controlling costs of fixed-price development programs; domestic and international competition; potential security threats, information technology attacks, natural disasters and other disruptions not under our control; and other risk factors and other important factors disclosed in our Form 10-K for the year ended December 31, 2013 and other filings with the Securities and Exchange Commission.

You are urged to consider the limitations on, and risks associated with, forward-looking statements and not unduly rely on forward-looking statements. These forward-looking statements speak only as of the date of this release, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. This release and the attachments also contain non-GAAP financial measures. A reconciliation to the nearest GAAP measure and a discussion of the company's use of these measures are included in this release or the attachments.

SCHEDULE 1

NORTHROP GRUMMAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

(Unaudited)

Year Ended December 31

$ in millions, except per share amounts

2013

2012

2011

Sales

Product

$

14,033

$

13,838

$

15,073

Service

10,628

11,380

11,339

Total sales

24,661

25,218

26,412

Operating costs and expenses

Product

10,623

10,415

11,491

Service

8,659

9,223

9,295

General and administrative expenses

2,256

2,450

2,350

Operating income

3,123

3,130

3,276

Other (expense) income

Interest expense

(257)

(212)

(221)

Other, net

(3)

47

28

Earnings from continuing operations before income taxes

2,863

2,965

3,083

Federal and foreign income tax expense

911

987

997

Earnings from continuing operations

1,952

1,978

2,086

Earnings from discontinued operations, net of tax

—

—

32

Net earnings

$

1,952

$

1,978

$

2,118

Basic earnings per share

Continuing operations

$

8.50

$

7.96

$

7.54

Discontinued operations

—

—

0.11

Basic earnings per share

$

8.50

$

7.96

$

7.65

Weighted-average common shares outstanding, in millions

229.6

248.6

276.8

Diluted earnings per share

Continuing operations

$

8.35

$

7.81

$

7.41

Discontinued operations

—

—

0.11

Diluted earnings per share

$

8.35

$

7.81

$

7.52

Weighted-average diluted shares outstanding, in millions

233.9

253.4

281.6

Net earnings (from above)

$

1,952

$

1,978

$

2,118

Other comprehensive income

Change in unamortized benefit plan costs, net of tax (expense) benefit of ($1,177) in 2013, $860 in 2012 and $823 in 2011

1,790

(1,303)

(1,249)

Change in cumulative translation adjustment

14

8

(4)

Change in unrealized loss on marketable securities and cash flow hedges, net of tax benefit of $1 in 2013, $0 in 2012 and $2 in 2011

(1)

(2)

(4)

Other comprehensive income (loss), net of tax

1,803

(1,297)

(1,257)

Comprehensive income

$

3,755

$

681

$

861

SCHEDULE 2

NORTHROP GRUMMAN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Unaudited)

December 31

$ in millions

2013

2012

Assets

Cash and cash equivalents

$

5,150

$

3,862

Accounts receivable, net

2,685

2,858

Inventoried costs, net

698

798

Deferred tax assets

605

574

Prepaid expenses and other current assets

350

300

Total current assets

9,488

8,392

Property, plant and equipment, net of accumulated depreciation of $4,337 in 2013 and $4,146 in 2012

Adjustments to reconcile to net cash provided by operating activities:

Depreciation and amortization

495

510

544

Stock-based compensation

144

183

140

Excess tax benefits from stock-based compensation

(43)

(45)

(17)

Deferred income taxes

128

78

441

(Increase) decrease in assets:

Accounts receivable, net

171

90

350

Inventoried costs, net

101

46

(2)

Prepaid expenses and other assets

(51)

(65)

16

Increase (decrease) in liabilities:

Accounts payable and accruals

(169)

23

(341)

Income taxes payable

2

(75)

(32)

Retiree benefits

(281)

(71)

(904)

Other, net

34

(12)

66

Cash provided by continuing operations

2,483

2,640

2,347

Cash used in discontinued operations

—

—

(232)

Net cash provided by operating activities

$

2,483

$

2,640

$

2,115

SCHEDULE 5

NORTHROP GRUMMAN CORPORATION

TOTAL BACKLOG AND CONTRACT AWARDS

(Unaudited)

December 31, 2013

December 31, 2012

$ in millions

FUNDED (1)

UNFUNDED (2)

TOTAL BACKLOG

TOTAL BACKLOG

Aerospace Systems

$

10,061

$

8,260

$

18,321

$

19,594

Electronic Systems

6,992

2,045

9,037

9,471

Information Systems(3)

3,285

3,579

6,864

8,541

Technical Services

2,206

605

2,811

3,203

Total

$

22,544

$

14,489

$

37,033

$

40,809

(1)Funded backlog represents firm orders for which funding is authorized and appropriated.

(2)Unfunded backlog represents firm orders for which as of the reporting date, funding is not authorized and appropriated. Unfunded backlog excludes unexercised contract options and indefinite delivery, indefinite quantity (IDIQ) contracts until the time the option or IDIQ task order is exercised or awarded.

(3)Information Systems backlog as of December 31, 2013 includes $1.0 billion of adjustments recognized in the six months ended June 30, 2013, primarily to reduce unfunded backlog for expired periods of performance on active contracts, including task orders on IDIQ contracts.

New Awards— The estimated values of contract awards included in backlog during the three months and twelve months ended December 31, 2013, were $5.7 billion and $21.9 billion, respectively. Net of the Information Systems backlog adjustments referenced above, contract awards for the twelve months ended December 31, 2013 were $20.9 billion.

Non-GAAP Financial Measures Disclosure: Today's press release contains non-GAAP (accounting principles generally accepted in the United States of America) financial measures, as defined by SEC (Securities and Exchange Commission) Regulation G and indicated by a footnote in the text of the release. While we believe that these non-GAAP financial measures may be useful in evaluating our financial information, they should be considered as supplemental in nature and not as a substitute for financial information prepared in accordance with GAAP. Definitions are provided for the non-GAAP measures and reconciliations are provided in the body of the release. References to a "Table" in the definitions below relate to tables in the body of this press release. Other companies may define these measures differently or may utilize different non-GAAP measures.

Pension-adjusted diluted EPS: Diluted EPS excluding the after-tax net pension adjustment per share, as defined below. These per share amounts are provided for consistency and comparability of operating results. Management uses pension-adjusted diluted EPS, as reconciled in Table 1, as an internal measure of financial performance.

Cash provided by operating activities before discretionary pension contributions: Cash provided by operating activities before the after-tax impact of discretionary pension contributions. Cash provided by operating activities before discretionary pension contributions has been provided for consistency and comparability of 2013 and 2012 financial performance and is reconciled in Table 2.

Free cash flow: Cash provided by operating activities less capital expenditures (including outsourcing contract & related software costs). We use free cash flow as a key factor in our planning for, and consideration of, strategic acquisitions, stock repurchases and the payment of dividends. This measure should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating results presented in accordance with GAAP. Free cash flow is reconciled in Table 2.

Free cash flow provided by operating activities before discretionary pension contributions: Free cash flow provided by operating activities before the after-tax impact of discretionary pension contributions. We use free cash flow provided by operating activities before discretionary pension contributions as a key factor in our planning for, and consideration of, strategic acquisitions, stock repurchases and the payment of dividends. This measure should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating results presented in accordance with GAAP. Free cash flow provided by operating activities before discretionary pension contributions is reconciled in Table 2.

After-tax net pension adjustment per share: The per share impact of the net FAS/CAS pension adjustment as defined above, after tax at the statutory rate of 35%, provided for consistency and comparability of 2013 and 2012 financial performance as presented in Table 1.

Segment operating income: Total earnings from our four segments including allocated pension expense recognized under CAS. Reconciling items to operating income are unallocated corporate expenses, including unallowable or unallocable portions of management and administration, legal, environmental, certain compensation and retiree benefits, and other expenses; net FAS/CAS pension adjustment; and reversal of royalty income included in segment operating income. Management uses segment operating income, as reconciled in Table 3, as an internal measure of financial performance of our individual operating segments.